BlackBerry Is Experiencing a Modest Resurrection

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BlackBerry Limited (BBRY) appears to be going through a rebirth of sorts as of late, at least from the business side.

Valuation may be another story, but we'll get to that in a minute. The company reported stronger-than-expected earnings this morning, posting a profit of 5 cents a share, which exceeded analysts expectations by 3 cents. The company also targeted a revenue range of $920 million to $950 million for FY 2018, above Wall Street estimates of $919.5 million. Furthermore, the company sees positive cash flow for the year along with software and services revenue growth of 10% to 15%. That software and service revenue came in at $196 million this past quarter, dominating the total $249 million in revenue the company posted in the second quarter. Perhaps most encouraging when trying to rationalize the $5 billion valuation in a name somewhat reinventing itself is the strong cash balance of $2.5 billion at the end of the quarter.

The story for BlackBerry, the future really, is automotives. The challenge is patience and competition. BlackBerry will need time to prove QNX can be more than just part of the infotainment system already present in many vehicles. In 2016, BlackBerry announced a deal with Ford, but details of the agreement are scant and appear to be mostly focused on vehicle entertainment systems. A few recent announcements may alter the view on BlackBerry as an infotainment company only and should give long-term holders a shot of optimism. The key here is long-term. While strong earnings have goosed the company this morning, earnings per share are expected to remain around a nickel moving into next quarter. A price-to-earnings ratio of 20 isn't outrageous, but when your annual revenue is about to fall about a billion for the first time since 2004 and possibly fall lower next year, it will give many pause and rightly so.

The announcement that BlackBerry expanded its relationship with Titan Transportation Group to supply Titan's fleet of flatbeds with Radar L, BlackBerry's new asset and fleet tracking product, is a step in the right direction. The system collects real-time information such as load status, temperature, humidity, and pressure information which is then stored securely on a cloud platform. This allows for Titan to build and view reports designed specifically for managing its fleet. From here, I could envision a simple crossover into A.I. with this data in order for Titan, or companies like it, to optimize the performance of their fleet. Perhaps this is already being pursued, or quite possibly BlackBerry would need an A.I. based partner, but I could envision that scenario and it would play out well for the bulls.

The second announcement already know before earnings is the agreement with Delphi Automotive (DLPH) to build an autonomous vehicle system. Delphi plans to spin off its electronic systems business, Aptiv APTV, while Delphi Technologies DLPH will hold the legacy powertain business. Aptiv and BlackBerry will be working together on autonomous cars. From a self-driving car standpoint, I'm more drawn to APTV as the company will have some $12 billion in revenue already given the other business it does in the electronic safety systems and electrical backbones of vehicles, but this is a major step for BlackBerry in a potentially high growth industry. Of course, it will face competition from heavyweights Intel (INTC) , Nvidia (NVDA) , and Micron (MU) .

Lastly, BlackBerry signed its first BlackBerry Secure licensing deal with Yangzhou New Telecom Science & Technology company. Making a move into smartphone security via licensed software to an OEM is another new step in the right direction as the company pursues organic growth. These phones will be embedded with BlackBerry's proprietary software and applications. While its encouraging to see a first deal, naysayers will need to see a second and third before warming up to the company.

Overall, this quarter and the accompanied announcements are encouraging. I'm hesitant to chase shares on today's pop as there is serious resistance in the $10.50 to $11.50 range. If we can get some consolidation in the $9.70 to $10.10 range for the next few weeks, I'd consider a small flyer in this name come wintertime. Until then, I have my eyes more focused on Delphi and the Aptiv spinoff.

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At the time of publication, Collins had no positions in any equities mentioned.

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